Analysis from The Drum

"Defence pay and defence allowances are paid out of the overall defence budget," Mr Abbott said.

"So the $17 million that it will cost to restore these allowances will come out of the defence budget - there won't be extra money put in."

But Mr Abbott said service men and women would still get a pay rise of 1.5 per cent, given the pressure on the budget.

But the move has failed to win over former Palmer United Party, now independent Tasmanian senator Jacqui Lambie who said her pledge to vote against government legislation until defence force personnel were given a better deal still stands.

"I find that a slap in the face when it comes to our defence force personnel - just another one for them," she told The World Today.

"So if [Mr Abbott] thinks that half-way measures are going to be acceptable, I can tell you from where I am standing they are not."

Education Minister Christopher Pyne has also conceded to crossbench demands on his higher education changes, retaining the student interest rate at the consumer price index instead of lifting it to the higher bond rate.

Government ditches university overhaul after 'ragged week'

The Government has also agreed to a proposal from Victorian senator John Madigan to give students who are new parents a five-year interest rate pause.

"I don't presume to know what the final outcome will be, but we are determined to deal with this matter one way or another in this final sitting week of the year."

The higher education changes will cost hundreds of millions of dollars to a budget already sinking deeply into the red.

In a grim preview to the Mid-Year Economic and Fiscal Outlook, due in the next fortnight, Deloitte Access Economics has forecast the deficit for this financial year will be $34.7 billion - $4.9 billion worse than Joe Hockey's May budget forecast of $29.8 billion.

But a senior Government source told the ABC the figures will be worse, with revenue affected by an iron ore price likely to be written down to around $60 a tonne, roughly 40 per cent lower than in the budget.

Finance Minister Mathias Cormann admitted the Government's plan to return the budget to surplus will be affected.

"There is no doubt that the significant reduction in commodity prices has had an impact on our capacity to bring the budget back to surplus on the timetable that we have previously envisaged," he told ABC News 24's Capital Hill.

The May budget had forecast diminishing deficits over the four-year forward estimates, predicting that by 2017-18 the deficit would have shrunk to just $2.8 billion.

However, it appears unlikely new cuts will be announced in MYEFO.

"Are we going to be looking for massive additional savings because of the downturn in the terms of trade? No," Mr Abbott said.

I'd be the first to admit that last week was a bit of a ragged week for the Government.

Prime Minister Tony Abbott

The Liberal Party's loss in the Victorian state election on Saturday capped off a troubled week for the Coalition Government.

Cabinet divisions over whether to persist with the $7 fee on GP visits were revealed, with the Prime Minister's office briefing that the budget "barnacle" would be dumped only to be publicly contradicted by Treasurer Joe Hockey.

"I'd be the first to admit that last week was a bit of a ragged week for the Government," Mr Abbott said.

"I know that appearances do count and I concede that the appearance last week was a bit ragged but, in the end, nothing matters more than performance and this is a Government which has a very solid year of performance under its belt."

Mr Abbott's handling of the political debate over the Government's decision to cut the ABC and SBS budgets was also canvassed, with the Prime Minister conceding the decision contradicted his election-eve promise that there would be "no cuts".

"I accept what we are doing with the ABC is at odds with what I said immediately prior to the election but things have moved on, circumstances are different," he said.